US-Indonesia Energy Day 2018

At the recent US-Indonesia Energy Day, US Ambassador to Indonesia Joseph R. Donovan urged the Indonesian government to accelerate regulatory reform efforts, including eliminating the local content policy (TKDN) and foreign ownership cap, to foster investment.

Donovan said the January 18 event, cohosted by the Ministry of Energy and Mineral Resources and the US Commercial Service, was to “celebrate partnerships and inspire new ones.”

In his opening remarks, the ambassador said that policies such as foreign ownership caps contribute to persistent trade imbalances. Indonesia enjoys a large trade surplus with the US, $12.35 billion in 2017. He stressed the importance of the role of technology and innovation — two areas where US companies are strong — in driving investment and growth. He also said that the partnership between the two countries has been focused on transfer of expertise, and the US is seeking to continue to do so.

In response, Minister of Energy and Natural Resources Ignasius Jonan said that the Indonesian government appreciates the US Embassy’s efforts, noting the US has been “pushing hard” in the energy sector. He reassured US companies that the government has no intention of nationalizing the energy sector, and is rather looking toward “commercialization on an equal basis,” with “an equal basis” referring to competitive pricing.

However, he also said that in setting electricity prices, the buying power of the people should be the ultimate concern because high electricity prices that are affordable only for some might result in increased social tension, instability and radicalization.

The rest of the day was filled with four panel discussions centered on important issues: improving the efficiency of fossil fuel-based power; achieving Indonesia’s rural electrification target; transmission, distribution and smart grid; and renewable energy development.

On Indonesia’s rural electrification target, Electricity Development Program Director Alihuddin Sitompul encouraged US investors to “bring investment, not consultation,” while also acknowledging that the small scale of rural electrification projects can discourage investment. Indonesia’s electrification ratio reached 94.91 percent at the end of 2017, and is expected to increase to 97 percent in 2019.

This, together with the expected increase in electricity consumption from 1,012 kWh/per capita in 2017 to 1,200 kWh/per capita in 2019, necessitates a bigger presence of US investors in Indonesia’s energy sector. He said that Nusa Tenggara Timur (NTT) and Papua have the lowest electrification rates in the nation, ranging between 50 and 70 percent.

With regard to seizing opportunities, Verania Andria, the Associate Director of the Millennium Challenge Account Indonesia, who also sits on the rural electrification panel, urged the Indonesian government to tap into what US industry can offer for the country’s energy sector through the public-private-people partnership (4P) model, especially since US industry has more money than the US government.

Donna Priadi, GE Indonesia’s Director of Government Affairs and Policy, said her company is eager to tap into both rural electrification and renewable energy. GE recently signed letters of intent for a windfarm project in Tanah Laut, Kalimantan and a solar energy project in Bali. With both projects expected to commence this year, GE is looking to invest more in the two aforementioned energy opportunities. She also said that careful stakeholder management in the energy sector is a challenge that US investors have to face in doing business in Indonesia.

Regarding renewable energy development, the Director of Various, New and Renewable Energy, Harris Yahya emphasized the need for private sector participation. Maritje Hutapea, the moderator of the renewable energy panel, who was also Harris’s predecessor, believed that the Association of Southeast Asian Nations (ASEAN), as a regional platform, could facilitate public-private partnership in the development of renewable energy.

Indonesia’s goal of achieving 23 percent renewable energy by 2025 is in line with ASEAN’s aspiration to increase the component of renewable energy to 23 percent in the ASEAN energy mix by the same year.

The discussions became increasingly spirited as the event approached its end, with Arian Ardie, representing the US Chamber of Commerce and AmCham Indonesia, expressing concerns over the 49 percent foreign ownership cap for power plants with capacity of less than 10 MW, as regulated in the Negative Investment List (DNI).

He said that the ring fencing of renewable projects limit the economies of scale for investors that larger projects enjoy, and that such policies discourage investment. Harris declined to discuss changing any existing regulations, while Maritje responded by asking investors to “start with” the 13 areas that Harris identified as attractive to renewable energy investors.

“Investor presence is very important, but as Minister Jonan said, regulations are a mandate, so let’s start with the 13 areas,” said Maritje.

Rosemary Gallant, the head of the US Commercial Service in Indonesia, closed the event by emphasizing the cost competitiveness of US companies and reiterating her hope that investors would be able to offer their technology and products without having to deal with “expenses that can slow them down.”

The reception for the event was held the same evening at the Ambassador’s residence.

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